Typically in a SaaS business you would avoid profitability until the last possible minute and plow back every bit of cash into customer acquisition (sales and marketing) until you reach a point of market saturation.

So long as retention is good, and your unit economics are profitable, it is like running those dollars into a money-printing press by buying an annuity that will pay out for years.

The issue is that slack has passed the point of market saturation. There are lots of competitors now as well as a shift towards decentralised options. I think slack should have entered that next stage already if they ever want to have a chance at getting back enough money.

The definition for saturation isn't "is there are lots of strong competitors and other options?" or even "a given percentage of the market is our customer."

Instead, the rule is more like: is CaC sufficiently lower than Customer Lifetime Value so that each customer is profitable. This ratio tells you if your money-printing machine is working. As the low-hanging leads dry up, CaC gets higher.

Your argument might be rephrased as "their customer lifetime may be shorter than they think." Possible. There's some amount of switching cost (lost history, webhooks and integrations) there, though.

I disagree. Market saturation is absolutely determined partly by competition, and partly by how much consumers are , well, able to consume.

In terms of competition, we've seen plenty of alternative pop up recently such as Mattermost and MS Teams, both of which have gained popularity.

In terms of consumption, it is only feasible to really have a single chat application at a time, maybe two if one is being tested. Having more than 1 defeats the purpose of having an org wide chat. Maybe individual teams will choose their own in large companies, but the general assumption is you try and sell your chat solution to the company, not to the individuals. And so we have a situation where the presence of strong competition directly effects the consumption of the product (Slack's offering).

My opinion is that Slack was previously somewhat synonymous with company chat, but that is no longer the case. They peaked, and now that Discord, MS Teams, Mattermost, etc. are viable alternatives, their market saturation is on the decline. They let their grasp slip away, and they will pay for it.

> In terms of consumption, it is only feasible to really have a single chat application at a time, maybe two if one is being tested. Having more than 1 defeats the purpose of having an org wide chat...

I know you're talking about within an organization, but this made me realize how long it's been since I've used a client like Pidgin/Adium/bitlbee that could handle multiple chat protocols all from one client.

I'm pretty sure the majority of the protocols I used to use in these apps aren't even around anymore (other than irc and xmpp).

> In terms of competition, we've seen plenty of alternative pop up recently such as Mattermost and MS Teams, both of which have gained popularity.

Slack has still had a net gain in users in the time that those competitors have gained users as well though, right? If everyone is gaining users, that seems like a reasonable argument against the market being saturated.

the problem is switching costs are pretty low

Ding Ding. This is exactly it. Mostly people don't understand the economic model of fast growth SaaS companies, even when working for one. Thanks for explaining it so clearly.

This comment comes up for basically every company. It's very surprising that virtually every successful B2B startup in Silicon Valley is 10x overstaffed and the VCs and investors aren't bothered by that!

They’re probably staffed like a company that’s 10x larger than they seem because they want to be 10x larger ASAP.

I just checked, and in 2019, they had $401MM in revenue with 1664 employees. That's ~$240,000 in revenue per employee.

Pinterest looks to have earned about $1.1 billion in revenue during the same time with roughly the same number of employees. Fastly is at $250MM in revenue with just 630 employees.

So it looks like Slack is at least twice as large as it should be for its given revenue. But why? Are they supporting too many platforms/devices? Or are chat applications just not that valuable to companies?

>1664 employees

What do they do? I am curious on the breakdown of engineering versus everybody else. I am always reminded of Craigslist, which operates with a skeleton crew. In 2017, it was reported they had 50 people on revenue of almost $700 million.

According to their 10-Q for this latest quarter, their operating expenses are 42% sales and marketing, 37% research & development, and 21% administrative.

https://investor.slackhq.com/financials/default.aspx

Pinterest is not a useful comparable for B2B SaaS.

I'm betting it's mostly recurring development costs. As far as I can tell Slack is constantly adding features and integrating new Apps.

They should buy a company that has already built integrations with most of the services users would rely on.

Their marketing is bad. Great product, but piss poor brand awareness.

Lately, they've been spending that money on legal fees suing Microsoft over Teams, because they are unable to compete. This was after they took out a huge New York Times ad encouraging the competition.

Before that, they spent a significant amount of time and resources on the new WYSIWYG editor that was extremely unpopular and caused them to do a public 180 after saying they wouldn't go back.

In short, it's being wasted on sour grapes and untested ideas.